Williamstown, MA, July 09, 2008 --(PR.com
)-- As inflation worries still nag at investors, ETF issuers continue to offer a variety of methods to invest in gold. The latest issue of Fidelity Independent Adviser’s PowerShares Momentum Tracker, http://store.fidelityindependentadviser.com/pws1yr.html, examines PowerShares DB Gold (DGL), an ETF that aims to give small investors a sophisticated exposure to the price of gold.
“While gold has inspired both issuers and investors alike in recent months,” noted publisher Don Dion, “results have been mixed on our Commodities Momentum Table.” PowerShares Momentum Tracker publishes a weekly ranking of PowerShares ETFs, where position on the table is determined by a momentum formula that utilizes relative strength indicators.
Out of the 26 funds that PowerShares Momentum Tracker added to its fund universe at the beginning of 2008, commodity based funds showed some of the most promise. At the end of January, DGL gained the No. #2 spot, a position that it held for almost a month, before sliding as low as No. #21 last week.
“There are three main types of gold ETFs in the market today: physical gold, gold mining, and gold futures contracts” says Dion, “DGL falls into the last of these three categories.” DGL tracks the Deutsche Bank Liquid Commodity Index– Optimum Yield Gold Excess Return™ (Index). Performance in the ETF is designed to mirror the performance of the index, which is composed of COMEX gold futures and three-year treasuries.
Dion believes that if the dollar begins to slide again, “DGL could experience significant returns for investors who understand and embrace its complexities.”
While derivatives, such as futures, are not appropriate for every portfolio, trading them will certainly give you the most leverage when dealing with the gold market. While you will not own physical gold with DGL, your returns will still correlate with the price of gold bullion, rather than the press releases of gold companies.
Despite the heightened interest in futures markets in the last year, futures remain a risky investment. Perhaps the most talked of snag in commodities funds is contango: as the futures contracts that you own expire, the new ones that you are “rolled into” can cost marginally more. This process can slowly eat away at your underlying capital and create an undertow on your returns.
DGL has sought to combat contango with its “optimum yield strategy.” The fund uses margin deposits in treasuries against the futures contracts to generate income. The idea is that the interest generated by the treasuries will be enough to offset contango losses. This is a benefit that investors do not receive with other popular gold ETFs.
“This strategy is unique in the ETF universe” Dion points out, “but most big banks and hedge funds that invest in futures utilize these kinds of hedges.” DGL, therefore, is aimed more at the smaller investor, who does not have the time or technology to manually hedge futures bets in a sophisticated way.
“As the ETF universe expands,” concludes Dion, “products like DGL will continue to make market niches accessible to investors.”
With the influx of new ETFs into the market, investors will look to PowerShares Momentum Tracker, and the family of publications to which it belongs, more than ever to decide which funds will be right for them.
PowerShares Momentum Tracker is a member of Fidelity Independent Adviser’s family of financial publications. With more than 70,000 subscribers in the United States and 29 other countries, Fidelity Independent Adviser publishes four monthly newsletters and three weekly newsletters. Its flagship publication, Fidelity Independent Adviser, has been published monthly for 11 years and reaches 40,000 subscribers. http://store.fidelityindependentadviser.com/fidinadnew.html
Publisher Don Dion is also president and founder of Dion Money Management, a fee-based investment advisory firm to affluent individuals, families and nonprofit organizations, where he is responsible for setting investment policy, creating custom portfolios and overseeing the performance of client accounts. Founded in 1996 and based in Williamstown, Massachusetts, Dion Money Management manages more than $720 million in assets for clients in 49 states and 11 countries. A licensed attorney in Massachusetts and Maine, Mr. Dion has more than 25 years’ experience working in the financial markets, having founded and run two publicly traded companies before establishing Dion Money Management. http://www.dionmm.com/